This article appears in this week’s magazine under the title, “Goodbye to the Surgical Mask.” It has been updated from the online version.

Our hospital bill is about to get a thorough examination. Acting on the suggestion of her top data crunchers at the department’s Centers for Medicare and Medicaid Services (CMS), Health and Human Services Secretary Kathleen Sebelius released an enormous data file on May 8 that reveals the list—or “chargemaster”—prices of all hospitals across the country for the 100 most common inpatient treatment services in 2011. It then compares those prices with what Medicare actually paid hospitals for the same treatments—which was typically a fraction of the chargemaster prices.

As a result, Americans are a big step closer to being able to compare what hospitals charge them for goods and services with what they actually cost. CMS public-affairs director Brian Cook told me that Sebelius’ action today comes in part as a response to “Bitter Pill,” TIME’s special report on health care pricing practices in the March 4 issue.

There are two reasons Sebelius’ release of this newly crunched, massive data file is a great first step toward a new transparency in health care costs.

First, it reveals the vast disparity between what hospitals charge for pills, procedures and operations and the real cost of those services, as calculated by Medicare.

As I explained in “Bitter Pill,” Medicare uses expense data submitted by all hospitals to determine the actual cost of all treatments—including allocations of overhead such as rent and administrative salaries—and pays accordingly. In other words, Medicare takes seriously—and enforces—the idea that nonprofit hospitals should be nonprofit.

For example, the first line in the more than 163,072 lines of data in the CMS file released May 8 covers the treatment of “extra cranial procedures” (“without complications”) at the Southeast Alabama Medical Center in Dothan, Ala. When Medicare reviewed the list prices on bills it received for 91 patients getting that treatment at the Dothan hospital in 2011, the average chargemaster bill claimed by the hospital was $32,963. Medicare paid only an average of $5,777.

The second reason the compilation and release of this data is a big deal is that it demonstrates the point I tried to make in spotlighting the seven sample medical bills in Time’s “Bitter Pill” report: most hospitals’ chargemaster prices are wildly inconsistent and seem to have no rationale. Thus the release of this fire hose of data—which prints out at 17,511 pages—should become a tip sheet for reporters in every American city and town, who can now ask hospitals to explain their pricing.

Helpfully, Sebelius points out in her announcement that “average inpatient charges for services a hospital may provide in connection with a joint replacement range from a low of $5,300 at a hospital in Ada, Oklahoma, to a high of $223,000 at a hospital in Monterey Park, California. Even within the same geographic area,” she notes, “hospital charges for similar services can vary significantly. For example, average inpatient hospital charges for services that may be provided to treat heart failure range from a low of $21,000 to a high of $46,000 in Denver, Colorado, and from a low of $9,000 to a high of $51,000 in Jackson, Mississippi.”

The hospital lobby, led by the American Hospital Association, is going to howl that Sebelius’ publication of these chargemaster prices is unfair. Only a minority of patients are actually asked to pay those amounts, it will argue. Insurance companies, which cover the majority of patients, receive huge discounts off the list prices, though they pay substantially more than Medicare does.

That’s true, but in the through-the-looking-glass world of health care economics, those who are asked to pay chargemaster rates are often under-insured or lack insurance altogether. Moreover, insurers typically negotiate discounts off the grossly inflated chargemaster prices ($77 for a box of gauze pads!), so the chargemaster matters for insured patients too.

So what should Sebelius and her team do next?

The feds need to publish chargemaster and Medicare pricing for the most frequent outpatient procedures and diagnostic tests at clinics—two huge profit venues in the medical world. But an even bigger step toward transparency would be collecting data that Medicare doesn’t have: exactly what insurance companies pay to the various hospitals, testing clinics and other providers for various treatments and services.

After all, as the hospitals themselves concede in downplaying their chargemasters, these insurance prices are the ones that affect most patients.

And that is one price list where there is close to zero transparency.

Click here for an excerpt from “Bitter Pill.” To read the full special report,subscribe here toTIME.

Steven, its not limited to just Medical Billing, the whole Healthcare IT and EMR meaningful use game is going into this direction, where Affordable Care Act will act like Accountable Care Act. The data gathered through Insurance Payers, Electronic Medical Records, Patient Portals, eRx, HL7 and EDI system vendors will eventually be used by US government, for a verity of purpose from cost comparison to preventive care strategies. Medical Billing and Coding Online

The hospital lobby, led by the American Hospital Association, is going to howl that Sebelius’ publication of these chargemaster prices is unfair. Only a minority of patients are actually asked to pay those amounts, it will argue.

Thanks Steve. We have to keep this issue front and center. Once we all can see the costs and prices, we can have an impact on the current system. There are a lot of issues to solve. We need to know what hospitals are charging for everything as a starting point.

I can't think of any other area in life in which I am asked to forge ahead with a procedure with *no idea* of how much it will cost me. Who would leave their car with a mechanic who said, "I have no way of telling you how much it will cost to fix your car. We'll both know when I'm finished and our billing department gets in touch."? Honestly, there is no valid reason why consumers shouldn't be provided with an estimate for a health care procedure before it is performed, especially those visits and procedures that are scheduled weeks, sometimes months, in advance.

First of all, Medicare does NOT pay for the REAL COST. It pays a fraction of the real cost. Check your facts.

Secondly, if you think that ALL hospitals and ALL procedures, and by extension, ALL doctors are equal in quality, guess again. There are both good and not so good (and frankly bad) procedures, hospitals, and doctors. And guess what? You get what you pay for (usually). There's a WIDE variation in skills among doctors, and quality of care among hospitals.

I do believe in transparency as far as billing goes, but the cost of any given procedure should NOT be equal across the board. A great doctor with pedigree training, low complication/call back rates, and no lawsuits should be paid more than one who is inferior. And a stay or procedure performed at a new, state-of-the-art facility SHOULD cost more than a similar procedure at an old, out-of-date facility. And, yes, a LOT more.

There really is no possible way to have transparency in billing. If hospitals only accepted medicare they would be closed. If they accepted only negotiated insurance, they too would be broke. If they accepted private payors along with non-negotiated insurance..they can compensate for the loss in revenue from the first two. If they have non-insured patients or underinsured....oh man, the list goes on. How do hospitals stay viable ? And certainly making prices "transparent," may never reflect the actual amount they are paid, or that they settle with. I could write lists and lists of variables, and truly affordable professional health care....for everyone-transparency ? Far too many variables, in my opinion. What of non-medicare billing/providing hospitals transparency ?

First off, big thanks to Mr. Brill for the much needed "Bitter Pill" article.

A point that was made in that article over and over again, and that must be restated until it truly sinks in with the American public, is that you can not have a market economy if the buyers don't have information about what they are buying. While I don't agree that publishing insurance company billing prices is necessary, I firmly believe that we should have a website at HHS that we can put the billing common charge code into that will spit out Medicare's analysis of the cost the hospital/doctor/clinic/etc. incurs to deliver the service and what Medicare pays for it. Along with a public information campaign that tells consumers how to get that information.

Single Payer,i.e., Expanded and Improved Medicare for All,. HR676, is the ONLY solution to all of this. We need to take out of the equation profit-driven health insurance companies. United Healthcare group earned $5 billion in profits off the backs of sick people. No other country makes a profit on health care. They believe , like some of us in the US believe, that health care is a human right, that a great society makes sure that EVERYONE has access to health care.

It is a myth that folks "over-utilize" the health care system. Who in their right mind would want to spend time in a hospital or clinic for the heck of it! Many diseases are inherited and need treatment. Telling them to live a healthier life-style is insulting if they have a serious disease that's not their fault. I am an RN and see the unjust system when I see young uninsured folks who don't have access to preventive care in diabetes. They develop renal failure, amputations, blindness,etc. earlier than wealthy and insured folks. 45,000 Americans die every year because of the sick, corrupt system we have. It's a disgrace.

Kaye wouldn't have to worry what Medicare plan to use-there will be only one that has a rich benefit package. Single Payer would cover the $104.50 monthly premium for Part A. There would be no need to supplemental coverage. The govt. could negotiate lower drugs costs through bulk purchasing like the VA and Kaiser do. The Republicans and Big Pharma refused to let Medicare do that-again GREED dictates.

We pay into the Medicare plan a through the Medicare taxes out of our paycheck when you are working. However, it is only 1.45%, a small amt. of money. Congress should have raised that tax a long time ago and we wouldn't have to worry about Medicare's solvency. In my area there are HICAP counselors who will give you advice on Medicare and the Medicare Supplement. and Part D programs.

I love Medicare! Before 65 I had to file for bankruptcy because of outrageous health bills. Ask any senior in the US if they would want you to take Medicare away from them and they would yell a resounding NO!!

We already have this great Single Payer Program,. Medicare. All we have to do is expand to cover cradle to grave health care.

Thanks, Steven Brill, for your extremely important article! I have heard rumors that you are now considering that Single Payer is the way to go!

I have worked for over 30 years, and have paid into Medicare. It is my opinion that when I am 65, my Medicare "insurance" should cost me nothing, this should also include my medications (I hate pills). I personally shouldn't have to try to figure out HOW to have this done, by reading the small print or hiring someone to help me get the BEST options. What is the Medicare Donut hole for 3 months ? Medicare is saving money by having me pay out of pocket for my own medications, for 3 months? What ?

It's my money, I earned this benefit. (It may not be there, nor my social security when I retire...it's a waiting game.)

With that mentioned...

Lets say I own a hospital, and I set my rates according to what it COSTS me to provide care....rent that space everyday, fix equipment, paint the walls. An insurance company called Medicare, run by the government, says that they have no intention of paying what it costs me (the business owner) to do these tests. In fact; they tell me they are only going to pay 50%. Then Medicare says, "the Doctors actually did the tests in the wrong order, and we are simply NOT going to pay for any of it." This claim is denied. Certainly billing at my hospital, well....we didn't get paid. Interface the billing with the patient cares, so every doctor at the point of care, can see what is covered and why it may not be covered ?

Most businesses would go bankrupt, if they allowed outside forces to control when and how they did business. Which is occuring, for many hospitals. Then, some hospitals are simply not taking Medicare patients. THEY cannot afford too.

As a person who has been healthy for more than 60 years and 6 months ago received a diagnoses of cancer, I was amazed at the difference between what my insurance paid for various treatments vs was the "bill" was for from hospitals, labs, doctors, etc. IE - it isn't just hospitals which are WAY out of line!

My company just launched a site that takes the data file referenced above released by HHS and puts it into a much more digestable format. You can see it here: http://www.hospitalowl.com. The site also allows comparing hospitals and viewing billing versus Medicare reimbursements on an interactive map.

As an ER doctor, I'm seen the need for transparency in healthcare for a long time coming. So about a year and a half ago - we set out to make healthcare completely price transparent and >>simple<< - we've created an Amazon-like user interface for buying your healthcare with transparent pricing - and guess what - when doctors don't have to code and bill for care, they can offer care for less! It's win-win!

Personally, I find it amazing to read all these comments and watch people assume that hospitals and doctors are all making exorbitant sums off of healthcare... and how people default to their political beliefs in promoting fixes (either "more competition" or "more government").

Are costs high? No doubt - but there are many factors involved because of the particular design of the healthcare system we have. For example, people take serious issue when comparing a $0.10 pill you take at home with a $10 pill in a hospital - yet apparently have no issue whatsoever when a $1 steak at home costs $20 in a restaurant. Arguably, the process behind giving that pill in a hospital is more regulated than any other endeavor in the US, and much more than just cooking a steak. Even an industry as regulated as the airlines don't have to contend with a myriad of State and local level controls on healthcare delivery.

And no, competition alone won't fix the issue. If there was true competition, any medical innovation would be limited to a precious few to promote profit. I mean, why would Apple freely let Samsung use Siri? Yet we expect the same innovations - like cardiac angioplasty or robotic surgery - at any given hospital in the US? (In any case, would a person having a heart attack in Wyoming or Florida really say "take me to Cleveland Clinic because their care is cheaper"?)

Conversely, just because a hospital is "non-profit" doesn't mean it doesn't have the right or the need to collect on its bills. Hospitals can't function as charities alone; if they have no incoming funds, they close - just like St. Vincent's in NYC. Hospitals are mandated to provide care, regardless of if someone can pay (or hasn't paid in the past). So therefore, if someone CAN pay, they should. Oh, and if non-profit hospitals WERE making huge profits, wouldn't you think the IRS would have a huge stake in finding that out?

Of course, the system of multiple public/private/self payers confuses the issue of what payments "should" be made in any given instance. That being said, hospitals and doctors are explicitly NOT allowed to collaborate on what "should be charged" in any given instance. That's called collusion, and expressly forbidden by the Sherman Anti-Trust Act - and the government has already said they would prosecute that aggressively.

So ultimately, it will take a huge change in the way we deliver healthcare in the US (we arguably deliver health consumerism) before costs go down significantly. And I'd argue it'll need to be a public/private coordinated effort - something like single-payer, privately managed "insurance" - to actually make it work.

Insurance is the REASON costs are so crazy because they take the patient out of the equation. Anything people view as "free" will be abused. If a patient were allowed an account which they paid their health insurance from and shared more of the burden and would get to keep any extra left at years end prices would immediately come down as patients would start 1)going to the dr only when needed 2)would question the need for each procedure instead of letting Drs run the tab up 3)would compare prices of the drs service. That would be true healthcare reform vs this joke of Obamacare.

I challenge you to: 1. find the list.2. find your particular hospital on the list. This is NOT user friendly. For example, the list of thousands of hospitals are listed by medicare number!! Not by name of hospital. C'mon government, you can do better than this.

Ween I got my ear sliced in half at work, Phelps Memorial kept cooking up mystery bills and threatening me for years, I told them to 'take it to NY State, they're waiting to hear from you'.....between that and Hanover's attempt at non-payment for car fire(I fixed that truck)..... I do not hesitate to seek insurance-fraud charges...the law used to affect both parties back then. Both situations resolved fairly.

I was in the hospital in Nashville (Vanderbilt Med Center) last year. Staph infection in my leg that landed me there a total of eight days. I was given lots of IV antibiotics, but no surgery only one visit to radiology and that's it. I had no health insurance and the total bill was $24,000. I'm type I diabetic (so I'm prone to infections) and they had to test my blood sugars four times a day. I pay about $0.26 for a testing strip. The hospital charged me $47.00 per strip. FORTY SEVEN DOLLARS! No wonder I'm broke. In my business I don't financially rape my customers even though the hospital does it to me.

I have now seen the day when Americans defend the profligate greed of hospitals in America. Negotiated prices are negotiated not because organizations like Medicare are better than the uninsured at achieving a price but rather reflect the threat of perhaps not receiving Medicare money at ALL. If tomorrow Medicare ceased to pay all the hospitals that overcharge they would cease to exist. The notion that $223,000 for a procedure reflects the true cost of that procedure is laughable. A friend of mine returned to her native Canada and asked a doctor a hypothetical question. She said assume that the Canadian NHS didn't exist - if I came in for an MRI - how much would you charge me as an individual. Assume I'm uninsured. The physician said - well the most I could justify is $1,000 - 3,000 Canadian Dollars. That same MRI - in the United States - at "charge master" rates that are negotiated by our insurance companies costs $30,000. I am unconvinced that for reasons unknown to me that there is a radical difference between a Canadian MRI and a US MRI. We are concerned about Pay Master rates because surely hospitals will go "broke". My question then is this: how do Japan's doctors and hospitals get along. Remember they have a national price book - they cannot charge MORE than is in the national price book. It's regulated pricing. Japan medicine is not socialist. Yet here again ignorance will allege that somehow the American hospital is superior because it is capitalist. I want to remind readers (though I should not have to do so) that many US hospitals started out as charities and many enjoy that status to this day. Yet they charge rates that approach those of a "for profit" business. I'm led to the conclusion that US Americans are so fearful of the specter of socialism that they're not willing to require hospitals to compete for our business. Because if our providers had to compete for my business their rates would be so low that everyone could easily afford insurance. But such is not the case. Medicare negotiates extremely low rates - yet my carrier negotiates very high rates. Furthermore my carrier offloads much of its care calling the status "pre-existing condition" thus enabling them to deny care and artificially boost profits. I challenge a capitalist to tell me how insurance companies in the US are required to compete. And tell me how it is that when President Obama challenged them to be competitive - their K Street lobbyists insured that state control remain - control they could more easily and corruptly co-opt so they could maintain monopolies.

"As a result, Americans are a big step closer to being able to compare
what hospitals charge them for goods and services with what they
actually cost."

Are we that naive to believe that Medicare pays hospitals what these procedures actually cost? Further, if hospitals are forced to forgo charging different prices to different people and lower all prices to what our federal bureaucracy says is fair, there won't be any hospitals left. Welcome to socialism at its worst!

Most folks have never understood the diference between "cost" and "charges." It is about time that these grossly inflated charges see the light of day in a very public way. Of course the government has known, and the insurance companies have known, but now it is time for everyone to know. The ACA (Affordable Healthcare Act) will make things even worse unless something is done to correct this situation. Good luck with that Mr. Obama..

Hospitals have created much of their own problem with uninsured people. They look at the uninsured as an actuarial group, and then set prices for them to be sure that those who actually can or do pay will pay for the services of everyone else in the group. The problem is, they aren't an actuarial group like employees of some company or members of a union. They are individual people who are uninsured for a wide variety of reasons. As a result, you have hospitals attempting to charge uninsured people 10X, 12X or more for the same procedure that they will accept as reimbursement from an insurance company because they think only uninsured people should cover the cost of the charity services they deliver. A few years ago I had a colonoscopy, and because of a clerical error, the hospital thought I was uninsured. They billed me $6,200 for the procedure. Some months later, after demonstrating conclusively that I was insured, they happily accepted $585 from my insurance company. So, essentially, they were asking me to pay for 12 people's colonoscopies. This is simply wrong, and I believe it was criminal fraud. If I had not been covered by insurance, I would have gladly paid the same $585 that my insurance carrier paid...it didn't cost them any more to provide services to me than to anyone else. They would have had to sue me for the $6,200.

One uninsured person has no more to do with another uninsured person's bill than does an insured person. Hospitals should have been required to amortize the cost of unreimbursed or charity care across all patients, including insured patients and medicare patients, and charge uniform fees regardless of coverage. If they had been doing that, most of the need for Obamacare would not have existed.

I would like to challenge Mr. Steven Brille to get in touch with an actual non profit hospital and actually shadow and do the job of the administrator and the CFO for a day. You could write an entire series of very enlightening articles from that experience alone. The chargemaster is just the TIP of the problem. It's a symptom of the bigger dysfunction that rests in the political, financial and societal end of healthcare policy. Until you have to balance a hospital budget and get a real idea about trying to plan for massively expensive facilities and regulations like ten years out you have no idea what the real meaning of this tiny spec of data means...

ok I have to comment on this out of experience. I think the article shows a complete lack of understanding of how hospitals are forced to operate. This idea that hospitals are somehow ripping off the public is way off base. The weird and complicated billing practices are an artefact of the Schizophrenic mandate hospitals are given by the public. Essentially we were REQUIRED to treat all comers. Yet we where not guaranteed payment. Yet we also were the first to get our funding cut by the feds state or local government politicians. Hospitals are FORCED to balance the books on these competing demands by robbing peter to pay paul. Politicians have known this FOR YEARS. This system has sprung up because politicians lack the balls to tell the public it needs to pay for the services hospitals provide that the public mandates. They essentially leave hospital administrators holding the bag and force them to squeeze it out of private pays and insurance companies. And anybody who thinks a hospital can survive on what Medicare pays should get their heads examined. Hospitals require continuous investment in buildings, equipment, and staff. There is no cost allocation for this in the Medicare fee schedules. So on this schedule plan on the hospital staying frozen in time technology wise and it's employees bailing for inflation adjusted salaries elsewhere. Also hospitals put aside sizeable rainy day funds that are invested in stocks and bonds not as some profit making adventure but as a hedge against the perpetual unreliability of aforementioned politicians to fund their mandates or to be consistent when it comes to funding charity care. So when it appears we where gouging for a profit, we where really doing was hedging our bets against the politicians who keep feeding you the lie of having your cake and eating it too and the private insurance companies perpetually harassing us for providing services at prices cheaper than our actual cost. This way we could at least stay open. Anybody who thinks that hospitals are gouging people should have to work for a week as a hospital CFO or administrator for a quick education. And I seriously doubt a magazine journalist has a clue what is going on other than trying to write some gotcha article that will mean zero as a solution but will just get people stirred up and mad at the wrong thing..

@AndreaL Hospitals are making a LOT of money and hospital administrators, and insurance administrators make a LOT of money. Don't try to tell me that they don't take in enough money. Also, the costs of testing do not depend on the Doctor. So the extreme variation in those costs are not accounted for by the quality of the doctor. Once a CT machine is paid for, it is not that expensive to run. I'm sorry, the extreme cost involved in many procedures is not justified even if the the Doctor is the best. It is really unethical for people to be profiting from the misery and distress of others like our health system does.

Most of our doctors who have put up their transparent prices are in Houston right now - but if you're a doctor reading this and believe in transparent pricing with your patients as another way to empower your patients, or you're a patient who would like to have transparent pricing - please contact us and let us know!

@jdchen003 Never heard of a $1 steak, your metaphor is a joke! The reality is that you might pay $12 for a T-bone in a grocery store and $25 in a restaurant. We all know there should be an "upcharge for someone doing the cooking and cleaning, and a 50-100% upcharge is considered reasonable. PLUS, you can always order chicken if you want. In your analogy with restaurants, where is the choice. You must be a hospital CEO. Just look around the country, who has the biggest, newest and shiniest buildings - the hospitals. License to steal is the current health care policy we have in this country. SHAMEFUL!

Price transparency is one component of The Intelligent HSA. We will never
control costs without controlling utilization. Utilization controlled internally
is called conservation and externally is called rationing. To motivate the
patient to control utilization reward the patient financially for cost conscious
decision making and healthy lifestyle choices. That does not occur in the
indemnity insurance model. When was the last time you got a dividend from your
insurer for doing the right thing?

Fully fund HSA's-- means tested if necessary. Then there is no down side
potential for high deductibles, but it is the patient’s money to conserve for
doing the right thing..

HDHP-- the catastrophic safety net that protects us all. Put it out to bid
regionally and treat the winner like a utility. A non-governmental single payer
system. This will reduce administrative waste and lower costs..

A “medical coach” free of the financial bias in the current doctor patient
relationship to advise the newly financially empowered patient to spend or
converse their HSA dollars based upon personal needs..

Price transparency-- let the consumer know how much every medical event and
encounter will cost so they can shop around.

What better driver that this to reduce utilization. The only losers are the
insurers. Google "theintelligentHSA" to read about it more fully

Price transparency is one component of The Intelligent HSA. We will never
control costs without controlling utilization. Utilization controlled internally
is called conservation and externally is called rationing. To motivate the
patient to control utilization reward the patient financially for cost conscious
decision making and healthy lifestyle choices. That does not occur in the
indemnity insurance model. When was the last time you got a dividend from your
insurer for doing the right thing?

Fully fund HSA's-- means tested if necessary. Then there is no down side
potential for high deductibles, but it is the patient’s money to conserve for
doing the right thing..

HDHP-- the catastrophic safety net that protects us all. Put it out to bid
regionally and treat the winner like a utility. A non-governmental single payer
system. This will reduce administrative waste and lower costs..

A “medical coach” free of the financial bias in the current doctor patient
relationship to advise the newly financially empowered patient to spend or
converse their HSA dollars based upon personal needs..

Price transparency-- let the consumer know how much every medical event and
encounter will cost so they can shop around.

What better driver that this to reduce utilization. The only losers are the
insurers. Google "theintelligentHSA" to read about it more fully

@thoma.francl Want to bet? Services always find a way to meet needs. If the current hospital / medical system won't do it a new model will eventually replace it. Roughly annual double digit increases in insurance premiums and medical costs for the last 20 years or so is simply not sustainable. and "yes" hospitals are ripping off the public especially the self pays. Maybe they'd have a better chance of collecting if they charged the same as they do for the insured or medicare.

@ChristopherRose Let me guess, you are one or the other - administrator or CFO. And I'm glad to see your admission that you are "robbing Peter" and "squeezing it out of private pays". Hospitals should be ashamed for the way they treat the uninsured. why should they pay more than an insurance provider's fees - often only 10 to 20% of your charges. Your day is coming and Obamacare is just the beginning. We can no longer afford to support 40,0000 square foot lobbies and hospitals don't need to look like a palace. I say hooray for Sebelius - first encouraging thing I've seen from this administration.

Exactly @loricus what a provider charges is not what it costs them. Providers got into this game along time ago. I remember my Mom's bills from 1990 one week hospital stay. What was charged at first was always greatly reduced by the time each item was full paid.@Kaye